Employee Benefit Trust
An employee benefit trust, or EBT as it is more commonly known, is an arrangement set up for the purpose of providing benefits for employees and their families.
In the United Kingdom, EBTs are typically used by companies to provide tax-advantaged savings, investment, or benefits-in-kind to employees. This can be a way to incentivise the company’s staff, to provide them with pensions or benefits packages in addition to their usual salary, and to attract, retain and reward the highest quality talent.
An EBT can operate in a variety of ways. It can either purchase or grant shares in the company, establish a bonus pool to compensate key staff, or pay out benefits to employees. Depending on the type of trust, different sets of regulatory requirements will apply.
In the UK, there are two main types of EBT: trusts established by companies to provide benefits to company directors and other senior employees, and trusts established by trade unions to provide benefits and insurance to members.
Company established trusts are commonly used to support benefits such as pensions, healthcare and stock options. In some cases, these trusts are operated through a subsidiary of the company, called a Section 56 Insulated Cell Company. This offers tax and audit advantages, but increases the complexity of the trust’s operations.
Trusts established by trade unions are generally set up to give union members access to additional benefits, such as life insurance, in addition to those provided by the union’s collective bargaining arrangements. These trusts are typically regulated by the Prudential Regulatory Authority (PRA).
In some jurisdiction, tax-advantaged EBTs can be used by companies as a way of fringe-benefiting employees without incurring employer National Insurance contributions.
Employee benefit trusts can offer many advantages to businesses. They can provide employers with the means to attract and retain the best talent, and provide employees with the opportunity to build wealth for retirement, or for other financial objectives. Despite the various regulatory, legal and financial complexities involved in setting up an EBT, the long term advantages of such a trust can easily outweigh the short-term costs.
It is always essential to seek proper advice when setting up or managing a trust for the purpose of employee benefits. This can ensure that the trust is able to run smoothly, and that it meets all applicable compliance requirements.
